Stock Target Price & CAGR Calculator: Understanding Compound Growth
When evaluating investments, one of the most fundamental questions is: "What return would I need to reach my target?" This is where CAGR—Compound Annual Growth Rate—becomes invaluable. CAGR tells you the smoothed annual return that would be required to grow an investment from one value to another over a specific time period, assuming gains compound each year.
Understanding the relationship between current price, target price, time horizon, and annualized returns helps investors set realistic expectations. If a stock trades at $100 and you believe it could reach $200 in five years, that implies roughly 15% annual growth. Knowing this, you can assess whether such growth is historically reasonable for similar companies or if your target might be overly optimistic.
Our Stock Target Price & CAGR Calculator helps you explore these mathematical relationships. Enter any three of the four variables—current price, target price, time horizon, or CAGR—and solve for the fourth. This tool is purely educational: it shows the math behind compound growth, not predictions of what any stock will actually do.
Whether you're a finance student learning about compound returns, an investor sanity-checking analyst price targets, or simply curious about investment math, this guide will help you understand CAGR concepts. Remember that real stock prices are volatile and unpredictable— this calculator shows mathematical relationships, not forecasts.
Understanding the Basics
What is CAGR?
CAGR stands for Compound Annual Growth Rate. Unlike simple average returns, CAGR accounts for compounding—the effect of earning returns on your returns. If you invest $100 and earn 10% the first year ($110) and 10% the second year ($121), you've earned $21 total, not $20, because the second year's return was on $110, not $100.
CAGR is particularly useful because it smooths out year-to-year volatility into a single number. A stock might rise 50% one year, fall 20% the next, and rise 30% the third year. Rather than averaging these inconsistent returns, CAGR tells you the equivalent steady annual rate that would produce the same ending value—making it easier to compare investments or assess growth trajectories.
CAGR vs. Average Return
Consider a stock that goes from $100 to $50 (−50%) in year one, then $50 to $100 (+100%) in year two. The average return is (−50% + 100%) / 2 = 25%—seemingly great! But your actual ending value is $100, exactly where you started. The CAGR is 0%, which correctly reflects your actual outcome: no gain, no loss.
This difference is critical when evaluating investments. CAGR always reflects the geometric reality of compounding, while simple averages can be misleading, especially with volatile investments. When comparing historical performance or projecting future growth, CAGR provides a more accurate picture.
Key Terms and Concepts
- Compound Annual Growth Rate (CAGR): The annualized rate of return that would grow an investment from starting value to ending value over a period
- Current Price: Today's price or your entry price—the starting point for growth calculations
- Target Price: A hypothetical future price—the ending point for calculations
- Holding Period: The number of years over which growth occurs
- Price Return: Return from price appreciation only, excluding dividends
- Total Return: Return including both price appreciation and dividends
- Rule of 72: A quick mental math shortcut: divide 72 by your return rate to estimate years to double (e.g., 72 ÷ 10% = ~7.2 years)
- Geometric Mean: The mathematical basis of CAGR—the nth root of the product of n returns
Historical Context: What CAGRs Are "Normal"?
For context, the S&P 500 has historically delivered roughly 10% nominal CAGR (7% after inflation) over very long periods. Individual stocks vary enormously—some achieve 20-30%+ CAGRs for stretches, while others decline. Growth stocks typically aim for higher CAGRs but carry more risk; mature dividend stocks might target 6-10% total return with less volatility. Any CAGR above 15% sustained over many years is exceptional; 25%+ is rare.
How to Use This Calculator
This calculator lets you explore the mathematical relationship between price, time, and returns. Choose a solve mode based on what you want to find:
Mode 1: Calculate CAGR from Prices
Use this when: You know the current price, target price, and time horizon, and want to find the implied annual return.
Example: A stock trades at $50 today. You believe it could reach $120 in 8 years. What annual growth rate does this imply?
Enter: Current Price = $50, Target Price = $120, Years = 8 → Calculator shows CAGR ≈ 11.6%
Mode 2: Calculate Target Price from CAGR
Use this when: You know the current price, expected CAGR, and time horizon, and want to see the implied future price.
Example: You're considering a stock at $75. If it achieves 12% annual returns over 10 years, what would it be worth?
Enter: Current Price = $75, CAGR = 12%, Years = 10 → Calculator shows Target Price ≈ $233
Mode 3: Calculate Years from CAGR
Use this when: You know the current price, target price, and expected CAGR, and want to find how long it would take.
Example: You own a stock at $40 and hope to sell at $100. If it grows at 8% annually, how long will that take?
Enter: Current Price = $40, Target Price = $100, CAGR = 8% → Calculator shows Years ≈ 12 years
Step-by-Step: Using the Calculator
- Select Your Solve Mode: Choose what you want to calculate (CAGR, target price, or years)
- Enter Current Price: The starting price (today's price or your entry price)
- Enter Known Variables: Fill in the values you know (target price, years, or CAGR depending on mode)
- Add Dividend Yield (Optional): If the stock pays dividends, enter the expected yield to see approximate total return
- Calculate: Review results including price path visualization and return breakdown
Understanding the Results
Price CAGR: The annualized return from price appreciation alone.
Total Return CAGR: If dividend yield is entered, this shows price CAGR + dividend yield as a rough total return estimate.
Price Path Chart: Visualizes year-by-year growth at the calculated CAGR.
Return Breakdown: Shows contributions from price appreciation vs. dividends.
Formulas and Behind-the-Scenes Logic
Understanding the CAGR formula helps you apply it correctly:
The Core CAGR Formula
CAGR = (Ending Value / Beginning Value)^(1/Years) - 1
Example: ($200 / $100)^(1/10) - 1 = 2^0.1 - 1 = 7.18%
This formula calculates the constant annual rate that compounds to produce the observed growth. The exponent (1/Years) is the key to extracting the annual rate from total growth.
Solving for Target Price
Target Price = Current Price × (1 + CAGR)^Years
Example: $100 × (1 + 0.10)^10 = $100 × 2.59 = $259
Solving for Years
Years = ln(Target Price / Current Price) / ln(1 + CAGR)
Example: ln($200 / $100) / ln(1.07) = 0.693 / 0.0677 ≈ 10.2 years
Total Return with Dividends (Simplified)
Approximate Total Return CAGR ≈ Price CAGR + Dividend Yield
Example: 8% price CAGR + 2% dividend yield ≈ 10% total return
This simple addition is an approximation. True total return with dividend reinvestment involves buying shares at varying prices, which creates more complex compounding. However, for quick estimates over reasonable ranges, simple addition provides a useful approximation.
The Rule of 72
Years to Double ≈ 72 / Annual Return (%)
At 8%: 72 / 8 = 9 years to double
At 12%: 72 / 12 = 6 years to double
This mental math shortcut helps you quickly estimate how long it takes investments to double. It's surprisingly accurate for rates between 6-15%.
Practical Use Cases
Scenario 1: Sanity-Checking Analyst Price Targets
Situation: An analyst sets a 12-month price target of $180 on a stock currently trading at $120. David wants to understand what return this implies.
Using the Calculator: Enter Current Price = $120, Target Price = $180, Years = 1. The calculator shows 50% CAGR required.
Insight: David realizes a 50% one-year return is extremely bullish— historically rare except for high-risk situations. This helps him calibrate how optimistic the analyst is and whether such growth is realistic for the company.
Scenario 2: Setting Personal Investment Goals
Situation: Sarah bought shares at $45 and wants them to reach $100. She's willing to hold for a reasonable period but wants realistic expectations.
Using the Calculator: She tests different time horizons: at 7% CAGR, reaching $100 takes ~12 years; at 10% CAGR, ~8 years; at 12% CAGR, ~7 years.
Insight: Sarah sees that reaching her target in under 10 years requires above-average growth. She adjusts her expectations or considers whether the company's prospects justify higher growth assumptions.
Scenario 3: Finance Student Studying Compounding
Situation: Marcus is learning about compound growth and wants to visualize how different CAGRs affect long-term outcomes.
Using the Calculator: He runs scenarios with a $100 starting point over 30 years at 5%, 8%, 10%, and 12% CAGR, observing the dramatic differences in ending values.
Insight: At 5%: $432 | At 8%: $1,006 | At 10%: $1,745 | At 12%: $2,996. Marcus sees how small differences in annual returns create massive differences over decades—a powerful lesson in why growth rates matter so much for long-term investing.
Scenario 4: Evaluating Historical Performance
Situation: Emily bought a stock at $28 ten years ago. It now trades at $75. She wants to know her actual annualized return.
Using the Calculator: Enter Current Price = $28 (her original purchase), Target Price = $75 (today's price), Years = 10.
Insight: Her CAGR was approximately 10.3%—a solid result that beat the long-term market average. This helps her evaluate whether the stock has been a good performer and set expectations for future performance.
Scenario 5: Including Dividends in Return Analysis
Situation: Kevin evaluates a utility stock trading at $50 that pays a 4% dividend yield. He expects modest 4% price appreciation annually.
Using the Calculator: He enters Current Price = $50, CAGR = 4%, Years = 15, plus 4% dividend yield.
Insight: Price CAGR alone shows $90 in 15 years. But with 4% dividends added, approximate total return CAGR is 8%—a reasonable expectation for a stable utility that provides income plus modest growth.
Scenario 6: Rule of 72 Verification
Situation: Lisa wants to verify how long it takes her investment to double at different rates and test the Rule of 72's accuracy.
Using the Calculator: She enters Current Price = $100, Target Price = $200, and tests different CAGRs: at 8%, calculator shows 9.01 years (Rule of 72: 9 years); at 10%, 7.27 years (Rule of 72: 7.2 years).
Insight: The Rule of 72 provides remarkably accurate quick estimates— useful for mental math when precise calculations aren't available.
Common Mistakes to Avoid
Treating CAGR as a Prediction
CAGR is mathematical, not predictive. Calculating that a stock "needs" 12% CAGR to reach a target says nothing about whether the stock will actually achieve that rate. Companies don't grow at constant rates—earnings surge, collapse, and surprise. Use CAGR to understand what's implied by assumptions, not to predict outcomes.
Extrapolating Short-Term Returns
A stock that doubled in one year (100% return) doesn't imply 100% CAGR over the next decade—that would turn $100 into $102,400! Short-term performance often mean-reverts. High recent returns may already be priced in or may have occurred under unique circumstances. Be cautious about projecting exceptional recent performance forward.
Ignoring Volatility and Risk
CAGR doesn't capture the roller coaster ride. Two investments might both show 10% CAGR, but one fluctuated between +50% and −30% years while the other grew steadily at 8-12% annually. The volatile path creates more risk (you might panic-sell during drawdowns) and behavioral stress. Always consider the journey, not just the destination.
Forgetting About Taxes and Fees
CAGR typically shows pre-tax returns. If you pay 15-20% capital gains taxes when you sell, your after-tax CAGR is lower. Annual fund expenses (expense ratios) also reduce returns. A fund advertising 10% CAGR might deliver 9.5% after its 0.5% expense ratio. Consider after-tax, after-fee returns for realistic planning.
Using Unrealistic Time Horizons
Projecting 30+ years at high CAGRs can produce astronomical numbers that seem exciting but are often unrealistic. Few companies maintain 15%+ growth for decades—markets, competition, and business cycles interfere. Be especially skeptical of projections that produce 10x, 20x, or higher returns; such outcomes are historically rare.
Confusing Price Return with Total Return
Price CAGR excludes dividends. A stock with flat price but 3% dividend yield actually delivered 3% total return annually. Conversely, a high-growth stock reinvesting all profits shows strong price CAGR but no dividend income. When comparing investments, ensure you're comparing the same metric—preferably total return.
Advanced Tips and Strategies
Use CAGR Ranges, Not Point Estimates
Instead of assuming a single CAGR, test a range: pessimistic (5%), base case (10%), and optimistic (15%). This creates a cone of possible outcomes that better reflects uncertainty. If your investment thesis only works at the optimistic end, the risk/reward may be unfavorable. Robust decisions work across the reasonable range.
Benchmark Against Market CAGRs
Any stock analysis should be benchmarked against alternatives—primarily index funds. If the S&P 500 historically delivers ~10% CAGR, a stock analysis implying 8% CAGR should prompt the question: "Why take individual stock risk for below-market returns?" Conversely, 15%+ CAGR assumptions demand evidence of sustainable competitive advantages.
Consider Multiple Expansion vs. Earnings Growth
Stock prices grow from two sources: earnings growth and P/E multiple expansion. A stock growing earnings at 10% annually might see only 8% price CAGR if its P/E compresses from 20x to 15x over time. Conversely, multiple expansion can boost returns beyond earnings growth. Consider which component is driving your CAGR assumption.
Use Inflation-Adjusted (Real) Returns
Nominal CAGR can be misleading if inflation is high. A 10% nominal CAGR with 3% inflation produces only ~7% real (inflation-adjusted) growth in purchasing power. For long-term planning (retirement, college savings), focus on real returns. The historical real return of U.S. stocks is approximately 7%, not 10%.
Account for Sequence Risk at Retirement
CAGR assumes smooth growth, but the sequence of returns matters—especially when withdrawing money. Two portfolios might both average 8% CAGR, but one that drops 30% early in retirement (when you're withdrawing) will be devastated compared to one that drops late. Near retirement, consider volatility and sequence risk alongside CAGR.
Reverse-Engineer Analyst Expectations
When analysts or commentators give price targets, reverse-engineer the implied CAGR. A 2-year target implying 30% annual returns should be met with skepticism—such returns are historically uncommon. This critical thinking helps you evaluate whether recommendations are grounded in realistic expectations or optimistic projections.
Consider CAGR Decay Over Time
Large companies typically grow slower than small ones (law of large numbers). A company growing at 20% CAGR might sustain that for 5 years but likely decelerates to 15%, then 10%, then 5% as it matures. When projecting long periods, consider declining CAGRs over time rather than constant rates, especially for growth stocks.
Sources & References
This calculator and educational content references information from authoritative sources:
- SEC Investor.gov – Investment basics and compound annual growth rate concepts
- FINRA – Stock investing education and return calculations
- Federal Reserve FRED Database – Historical market return data
- SEC – Understanding investment returns and performance metrics
- Bureau of Labor Statistics – Inflation data for real return calculations
Note: This calculator shows mathematical relationships between price, time, and growth rate. It does not predict future stock prices or recommend investments. Past performance does not guarantee future results. Stock prices are volatile and unpredictable.
For Educational Purposes Only - Not Financial Advice
This calculator provides estimates for informational and educational purposes only. It does not constitute financial, tax, investment, or legal advice. Results are based on the information you provide and current tax laws, which may change. Always consult with a qualified CPA, tax professional, or financial advisor for advice specific to your personal situation. Tax rates and limits shown should be verified with official IRS.gov sources.